Chavez's Economic Problems Turn Nasty

By Megan McArdle

For a long time I have been saying (along with a lot of other people), that Hugo Chavez was running his country into the ground. He diverted investment funds from PDVSA, Venezuela's state-run oil company, into social programs. As long as the price of oil kept rising, he could do that. Unfortunately, Venezuela's sour, heavy crude is particularly hard to get at and refine, and requires a high rate of investment in order to keep production up. As a result, the number of barrels per day (bpd) that Venezuela produces has declined pretty sharply since he took office in 1999.

As a consequence, the money that Chavez used to paper over the cracks in his socialist paradise has vanished, and the cracks are deepening:

President Hugo Chávez
has been facing a public outcry in recent weeks over power failures
that, after six nationwide blackouts in the last two years, are cutting
electricity for hours each day in rural areas and in industrial cities
like Valencia and Ciudad Guayana. Now, water rationing has been introduced here in the capital.

The deterioration of services is perplexing to many here, especially
because the country had grown used to cheap, plentiful electricity and
water in recent decades. But even as the oil boom was enriching his
government and Mr. Chávez asserted greater control over utilities and
other industries in this decade, public services seemed only to decay,
adding to residents' frustrations.

With oil revenues declining
and the economy slowing, the shortages may have no quick fixes in
sight. The government announced some emergency measures this week,
including limits on imports of air-conditioning systems, rate increases
for consumers of large amounts of power and the building of new
gas-fired power plants, which would not be completed until the middle
of the next decade.

This comes on top of the sporadic food shortages that result from price controls combined with high inflation.

Chavez's solution to these problem has been to go militaristic on neighboring Columbia. Apparently, he's stepping up the rhetoric:

So few were terribly surprised Sunday when Mr. Chávez sidestepped those
subjects on his weekly television show -- and instead appeared to
declare war on neighboring Colombia. "Let's not waste a day on our main
aim: to prepare for war and to help the people prepare for war," the
strongman told his military leaders.

The bluster was taken in stride by most Venezuelans, who according
to a recent poll oppose conflict with Colombia by a margin of 4 to 1.
Venezuela's largest newspapers played the story below other news. Even
the Colombian government's response was relatively low-key, though it
talked about appealing to the United Nations and the Organization of
American States. The State Department blandly suggested "dialogue"
between the two countries.

We'll accept that this is just another instance of Mr. Chávez's
buffoonery. Still, it's worth noting: This is the second time in less
than 18 months that Mr. Chávez has ordered troops to the Colombian
border and suggested that hostilities were imminent. In the past few
years he has spent more than $4 billion on arms purchases from Russia
alone. He claims to be worried that a recent U.S. agreement with
Colombia, under which U.S. Air Force and Navy units will have expanded
access to military bases, is meant to facilitate a U.S. invasion of
Venezuela. In fact, he has something to worry about: The bases will be
used for U.S. drug surveillance flights, and Mr. Chávez is known to be
cooperating with terrorist organizations that are trafficking drugs
from Colombia through Venezuela.

No one thinks war is imminent; they think it's just bluster to stir up patriotism and channel it through the figure of one Hugo Chavez. But then, as the article points out, no one really thought Argentina would invade the Falklands, either. Desperate times make desperate men. And while he's still popular now, his polls are slipping rapidly, showing him close to, or under, the critical 50%.